2012 Games 'faces £159m black hole'

The financial outlook of the Mayor of London's economic agency is "bleak" given the £159 million black hole created by the project to buy up land for the 2012 Olympics, a report has warned.

The London Assembly's Budget and Performance Committee Pre-Budget Report claims the recently identified London Development Agency (LDA) shortfall has "not only damaged the Agency's reputation but has significantly reduced its resources".

The LDA had to pay more than 3,000 businesses and individuals to buy land for the 600 hectare site in Stratford, east London, through compulsory purchase orders but insisted there was no evidence of wrongdoing.

The report states: "The financial prospects for the LDA in 2010/11 are bleak. Together with clawbacks from central government of previously allocated grants, this shortfall will result in the LDA's available resources being over 20% less in 2010/11 than previously planned.

"This comes in a period when the LDA will be trying to establish credibility with Londoners as the lead agency on economic development and regeneration in the capital in a challenging economic environment."

Revised budgets for 2009/10 are to be carefully managed, a second look has been taken at projects planned for this period and a £45 million package of measures including delaying or possibly cutting some projects is proposed, the LDA said. The schemes in danger of being axed were not named but the LDA is looking at projects which are considered relatively poor value for money. The LDA has also asked the Government to delay by several years repayment due this year of a £50 million loan for land acquisition.

Noting that its confidence in the LDA's ability to produce and monitor budgets accurately has been "dented", committee chair John Biggs said: "The LDA must now demonstrate that lessons have been learned, controls improved and sufficient testing on budget areas carried out to ensure budgets going forward can be relied upon."

An LDA spokesman said: "The London Development Agency discovered its Olympic budget problems after the new management team introduced checks and procedures to improve the Agency's historic finance and governance systems.

"An independent investigation by KMPG found that additional spending commitments of £159 million in the LDA's Olympic Legacy Directorate were due to historic and systemic management failures in that directorate. The London Development Agency's new leadership has drawn up proposals to accommodate these additional commitments through an Agency-wide drive to improve value for money from its investments and by re-forecasting its budgets in future years.

"The Olympic budget problems are part of historic management failures that were inherited by the LDA's new leadership, who are continuing to address this legacy and are ensuring that the organisation is fit for purpose and able to maximise its strategic impact in London and for Londoners."